Coutts Woman

Becoming a Business Angel

Karen Jones, the woman behind the successful Café Rouge restaurant chain, spoke at Coutts & Co’s latest women’s seminar. Jones entertained an intimate audience of 40 with tales of her experience as an entrepreneur receiving Angel investment, including how she handled starting up her own venture and falling pregnant soon after.

Business Angel specialist, Envestors, a company set up three years ago which matches investors with early-stage businesses, ran the seminar to give delegates some hard facts and figures about becoming an Angel. 

“Seasoned investors recognise that 40 per cent of their investments will not succeed.”

First defining what a Business Angel is, they said:  “Angels are people who are prepared to invest their money and often their time into start up and early stage businesses.  They are willing to risk investing at this stage in the hope that the success and growth of the business will dramatically increase the value of their equity stake.”

They then dispelled some myths.  “There are many misconceptions of Business Angels such as that they are wealthy and invest big sums of money,” they said.  “In fact, the angel investment amounts are around £25,000 with investment levels starting as low as £10,000.”

Next were the hard facts and figures.  Warning that there are some serious risks involved, they explained: “Seasoned investors recognise that 40 per cent of their investments will not succeed.  A further problem can be the difficulty in extracting your capital, especially in the event of the business showing slower growth than projected.”  However, in many cases, the risks have been seriously outweighed by the financial gain that comes with success – where the good investments can multiply 10-20 times or more. 

Seasoned Business Angel, Michael Anderson, also spoke on the night, giving some hints and tips on his experiences.  Anderson has been involved in eight Angel investments of which all have been a success.  One of these is Cobra beer, while one he still regrets not investing in is Innocent Smoothies.

Some of the top tips on investing as a Business Angel, inlcude:

1. Check the people.  Most seasoned Business Angels ‘bet on the jockey and not the horse’ and rank the people bit as the most important.

2. Ensure the directors understand the obligations of taking on a Business Angel. They need to have the right ‘attitude’.

3. Ensure the directors have enough ‘skin in the game’.  They should have some significant personal investment to deter them from walking away at the first sign of trouble.

4. Ensure the directors understand the commercial basics.  Check they comprehend fully where they are creating their margin and what the key revenue drivers are. 

5. Ensure there is a well-rounded management team. If they haven’t got one in place yet, what are they doing about it?  Do they recognise their skills gaps and know how to fill them?

6. Ask why they (and/or existing shareholders) are not putting in any money themselves.  And/or why they cannot find people within their own contact base who could invest ino the business, even if it is only £20,000.  Directors are less likely to let down people they know.

7. Hold the directors accountable for the financial forecasts.  One seasoned investor insists upon having the right to dismiss the management team if the financial targets in the business plan are not met

8. Keep directors’ salaries under control.  Firstly, ensure the directors are not earning more than they were in their previous roles or jobs without good reason (you do not want to be financing their high-flying lifestyles).  Secondly, ensure that any increases in directors’ salaries are performance related. 

9. Ask for warranties.  Warranties are signed assurances from the management team e.g. There has been no change to the business’s financial situation since obtaining management information.  They provide the basis for legal recourse if information is misleading or has been deliberately withheld.

Click here to read more about becoming a Business Angel and Brigitte Baumann, founded of Go Beyond, a company creating a vibrant seed capital sector in Europe which educates potential investors on the virtues of start up companies.

For more information on becoming a Business Angel with Envestors, visit www.envestors.co.uk or email them at investors@envestors.co.uk